Identifying rare, highly penetrant risk mutations may be an important step in dissecting the molecular etiology of schizophrenia. We conducted a gene-based analysis of large (>100 kb), rare copy-number variants (CNVs) in the Wellcome Trust Case Control Consortium 2 (WTCCC2) schizophrenia sample of 1564 cases and 1748 controls all from Ireland, and further extended the analysis to include an additional 5196 UK controls. We found association with duplications at chr20p12.2 (P = 0.007) and evidence of replication in large independent European schizophrenia (P = 0.052) and UK bipolar disorder case-control cohorts (P = 0.047). A combined analysis of Irish/UK subjects including additional psychosis cases (schizophrenia and bipolar disorder) identified 22 carriers in 11 707 cases and 10 carriers in 21 204 controls [meta-analysis Cochran-Mantel-Haenszel P-value = 2 × 10(-4); odds ratio (OR) = 11.3, 95% CI = 3.7, ∞]. Nineteen of the 22 cases and 8 of the 10 controls carried duplications starting at 9.68 Mb with similar breakpoints across samples. By haplotype analysis and sequencing, we identified a tandem ~149 kb duplication overlapping the gene p21 Protein-Activated Kinase 7 (PAK7, also called PAK5) which was in linkage disequilibrium with local haplotypes (P = 2.5 × 10(-21)), indicative of a single ancestral duplication event. We confirmed the breakpoints in 8/8 carriers tested and found co-segregation of the duplication with illness in two additional family members of one of the affected probands. We demonstrate that PAK7 is developmentally co-expressed with another known psychosis risk gene (DISC1) suggesting a potential molecular mechanism involving aberrant synapse development and plasticity.